There’s No Place Like Home for Franchisors and Franchisees

Competitors of all kinds know home court advantage helps them win. Home court advantage refers to the psychological, procedural and logistical edge gained by competing in a familiar setting, where one has better knowledge of the rules and conditions, and where spectators and possibly referees, judges and juries tend to be more supportive. Sports teams, business negotiators, entertainers and litigators all want the home court advantage. In litigation, jockeying over home court occurs in a battle over “venue.” Extensive rules and decisional law have developed addressing how the question of venue will be decided.

In late 2013 the U.S. Supreme Court issued an important decision on venue in business litigation. Atlantic Marine Construction Co. v. U.S. Dist. Court, 134 S.Ct. 568 (2013). The decision’s impact is already being felt in litigation between franchisors and franchisees. The current U.S. Supreme Court decides many important cases by a 5-4 vote. Four justices (John Roberts, Clarence Thomas, Antonin Scalia and Samuel Alito) lean conservative. Four justices (Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayer and Elena Kagin) tilt liberal. Frequently, the majority is whichever group centrist Justice Kennedy joins. But the Atlantic Marine decision was unanimous. This means despite the political schism on the court, all nine justices agreed.

The import for franchisors and franchisees of Atlantic Marine, and the analysis applied within and outside California is that the best way to obtain one’s desired forum in litigation is to be the first to sue in one’s preferred venue. A franchisor who sues in an agreed venue outside California can invoke Atlantic Marine to insist the venue agreement should be enforced, and a franchisee’s claim under Section 20040.5 should be rejected. In contrast, a franchisee who brings litigation in California, despite an agreement setting venue elsewhere, can argue that Cal. Bus. & Prof. Code Section 20040.5 voids the venue clause, and therefore, Atlantic Marine should not apply.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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